Insolvency Service cracks down on Covid fraudby
Thomas Cattee examines how new statutory powers will beef up Insolvency Service investigations into Covid-19 fraud.
Companies that abuse government Covid-19 loan-related schemes through fraud will now face winding-up petitions from the Insolvency Service. This approach supplements other measures being imposed, including director disqualifications.
In a recent press release, the Insolvency Service said that since February 2021 it had successfully petitioned the courts to wind up five companies involved in abusing Covid-19 government loans. The action was prompted after the Bounce Back and Coronavirus Business Interruption loan schemes introduced to help businesses during the pandemic were exploited by fraudsters.
In one case a company director was disqualified for 12 years after fraudulently claiming a £50,000 Bounce Back loan and transferring the full amount from the company to himself days before the company went into administration.
The individual forged a document to convince his bank that the winding up order had been revoked, allowing him to transfer an amount, including £50,000 bounce back loan, out of the account.
Two out of the five companies that were wound up secured Bounce Back Loans and at least one of these was obtained on the basis of fraudulent misrepresentations. It is also reported that a company in Glasgow secured two Coronavirus interruption loans, again, on the basis of fraudulent misrepresentation.
Two other companies submitted false documents to at least 41 local authorities and the government’s Bounce Back Loan scheme to secure business support grants during the pandemic. Both companies were wound-up by the High Court.
The Insolvency Service described the “egregiously” false information used to secure business grants and Bounce Back Loans. The first company claimed to be a PPE supplier that had secured £95,000 worth of business grants. It also received a £50,000 bounce back loan.
The second company falsely claimed to operate from premises that turned out to be unoccupied, provided false leases and claimed to sell medical care products – all for the purpose of fraudulently securing funding that was supposed to support businesses during the pandemic.
Small business minister Paul Schully commented: “This decisive enforcement action shows that we will not tolerate shameless attempts to defraud the taxpayer and falsely claim public money intended to help businesses through the pandemic.”
There could be more cases in the pipeline, according to the chief investigator of the Insolvency Service, issued a plea urging “anyone who suspects a company who has been involved in this kind of abuse, or has information about directors fraudulently obtaining Covid business support, to alert us immediately”.
New legislation coming into force will give the Insolvency Service extra powers to investigate Bounce Back Loan fraud in cases where the company has been dissolved.
If and when it is implemented, the Rating (Coronavirus) and Directors Disqualification (Dissolved Companies) Bill currently making its way through Parliament will give the Insolvency Service power to investigate and disqualify directors of dissolved companies which previously fraudulently claimed Bounce Back Loans. This power will be retrospective, enabling conduct that took place before the law comes into force to be investigated.
At present, when a company is liquidated, a director’s conduct in the three years preceding liquidation comes under scrutiny. If they are deemed to have engaged in “unfit conduct”, then legal action can be taken for disqualification for between 2-15 years. Where monies are lost as a result of the director’s actions, then personal liability can accrue. If disqualification is ordered and subsequently breached, criminal sanctions can follow.
In order for this process to take place, however, proceedings must be instigated while the director is in office and as the company is being liquidated. The company therefore remains on the register of companies. If, however, there is an application to dissolve a company that passes through the system without scrutiny, the insolvency regulator’s options are limited.
The new bill will exptend section 6 of the Company Directors Disqualification Act 1996 Act, to include former directors of insolvent companies, as well as former directors of dissolved companies.
If the disqualification legislation passes, then directors who may have dissolved a company in order to avoid investigation as part of the liquidation procedure could now come under the spotlight.
With an anticipated rise in companies dissolving as a result of the pandemic, it is important to be aware of the pitfalls which may still await if a company is dissolved, or if a director resigns office.
You might also be interested in
Thomas Cattee, head of white-collar crime at Gherson Solicitors.
Experienced in leading aspects of high profile international cases as both a defence and investigative/prosecution lawyer, Tom is ably positioned to advise both individuals and corporations subject to multi-agency domestic...